The Wire; November 9, 2015. The substantial new barriers against generic entry envisaged by the TPP will not only ensure longer monopoly pricing for pharmaceutical products but also render competition between brand and generic manufacturers unviable.

The text of the controversial Trans-Pacific Partnership treaty, involving the United States and 11 other countries – and 40% of the world’s GDP – was finally released in the public domain by prospective member parties earlier this month. Despite its breadth and the incorporation of significant new legal standards in international trade, the seven-year long negotiations leading up to the treaty were shrouded in secrecy with no details available to the public.

The Intellectual Property chapter, in particular, has been a cause for great concern, as leaked drafts of the text revealed substantial leaps in exclusion rights to rights-holders over and above the prevailing TRIPS standard. Consistent push-back from public health and open access advocates, internet freedoms activists, environmentalists, labour groups and even governments seems to have had only a marginal impact on the negotiations as the released text confirms this shift towards more restrictive standards. Most seriously, continual access to medicines faces a severe threat from the new barriers envisaged in the TPP text as pharmaceutical companies have been given not only stronger monopoly rights, but the opportunity to arm-twist national governments by invoking the private dispute resolution mechanism in the treaty.

Closed door negotiations

The fight for transparency in the TPP negotiations follows a history of intellectual property law making driven by corporate interests and characterised by knowledge asymmetries and coercive politics.

The very idea of linking intellectual property to international trade regulation via GATT – as opposed to the World Intellectual Property Organisation (WIPO) – was mooted and zealously advocated by a lobbying group of industry interests in the US that ingenuously transformed a buried provision against counterfeiting into a proposal for a full-fledged agreement covering all aspects of intellectual property. The developing world, particularly India, fought back against the imposition of mandatory minimum standards in IP, especially in the areas of pharmaceuticals and biotechnological products in agriculture. However, by linking WTO membership to the adoption of TRIPS, the developed world left other countries with no choice but to sign on.

At the same time, this resistance eventually translated into provisions that enabled modified rules in public interest, known as TRIPS flexibilities. These hard won flexibilities have enabled transition periods for developing countries and least developing countries (who just received a 17-year exemption for patents on pharmaceutical products), compulsory licenses and provisions against evergreening. Having failed at the global forum, the US and the EU have since attempted to counteract these flexibilities by introducing higher standards through regional free trade agreements. The TPP, in isolating the developing countries in that region and conducting negotiations on the basis of ‘advice’ from industry groups and away from civil society scrutiny, prevented the mobilisation of public opinion that successfully pushed back against such private interest-driven policymaking at the time of the TRIPS Agreement. It is no surprise then that the TPP envisages huge gains for corporations to the detriment of public interest.

Longer exclusion rights

A series of provisions in the TPP mandatorily extend private monopoly rights, particularly in the field of pharmaceuticals.

Patent Term Extensions

The treaty provides that member countries ‘shall’ provide extensions to patent terms, over and above that provided in law to account for ‘unreasonable’ delays in processing patent applications.

This is in contrast to the TRIPS mandated minimum period of 20 years “counted from the filing date”. This norm of compensating for delays in patent processing may not be suited to regimes with complex patentability criteria, such as Section 3(d) in India law.

Logo created by Doctors Without Borders (MSF) as part of their worldwide campaign in 2007 to get Novartis to drop its challenge to the Indian patent law.

Further, with ‘processing’ defined as only ‘initial administrative proceeding’ and ‘administrative processing at the time of grant’, it does not envisage pre-grant opposition proceedings. This mechanism has been an important one in Indian law with a high success rate – a study reports this as 73.5% – the most notable being Novartis’s Gleevec patent application which reached the Supreme Court on the question of Section 3(d), but started off as a pre-grant opposition by a cancer patients group.

In a jurisdiction like the US with a sophisticated patent office and no pre-grant opposition procedure, patent term extensions of 5 years have been granted. In developing country patent offices which do not have an adequate number of specialised examiners and access to key databases, this could lead to routine (and significant) extensions, and militates against the incorporation of pre-grant opposition procedures.

The treaty also provides an additional patent term extension to patented pharmaceutical products to compensate for “unreasonable curtailment of the effective patent term as a result of the marketing approval process.”

Marketing approval is granted by drug regulatory agencies which check for the safety of a drug for public consumption. Some drugs, particularly those for more complex illnesses, might require extensive clinical trials. Since ‘unreasonable curtailment’ has no guidance, this provision could be utilised by drug companies producing life saving drugs that might need more elaborate testing to argue for extended terms. More importantly, hidden in a footnote to the provision is a clause that states that an extended term may be made available more generally as a sui generis (unique) mechanism which could also simply circumvent the question of determining whether the delays were ‘unreasonable’ at all.

Data exclusivity

The TPP provides for a minimum five year protection of data required to be submitted to a drug regulatory agency for marketing approval of a drug. This means that data submitted by originator companies cannot be relied on by subsequent generic manufacturers in their marketing approval applications.

Since most generic companies are not designed for elaborate and capital intensive activities such as clinical trials, this effectively bars generic entrants into the market for the data exclusivity term. Crucially, data exclusivity has to be granted to all ‘new pharmaceutical products’ – which is defined as any product that has not received prior approval. Since marketing approval has a completely separate set of criteria from patentability, this grants exclusion rights and effectively grants monopoly rights to even those drugs that would not be patentable.

New indications (the use of the same drug to treat a new ailment), new formulations (new mixtures or slight modifications in the structure or composition of the chemical) or new methods of administrations (new dosage) are explicitly given ‘at least three years’ of data exclusivity despite the fact that these often do not meet the patentability threshold (even under the lower bar in US law) and can be expressly declared non-patentable in some jurisdictions – as in Section 3(d) of the Indian law. Biosimilar and bioequivalent drugs – which means drugs which have the same effect, but which may not have the exact same composition or utilise the same process as the originator drug and hence may not violate any patent rights – also cannot rely on earlier clinical trials.

In God, and Monopoly Power, We Trust. Credit: Kazhuhisa Otsubo/Flickr

This can have devastating effects on drug prices. For example, the cost of Novartis’s cancer drug, Gleevec, which was held to be not patentable as a result of Section 3(d), was around Rs 1.2 lakh a month while generics were selling the same at Rs 5000-9000 a month. Another example is the jump from a generic price of $70 per person per year for AZT, earlier used for cancer, to $7000 per person per year monopoly price when it was introduced for HIV treatment.

The TPP also contains a special provision requiring a minimum 8-year data exclusivity period for biologics, a distinct class of drugs believed to be the future of medicine. These drugs consist of complex protein molecules isolated from plants, animals or microorganisms or that are biotechnologically engineered and are used in the treatment of cancer, rheumatoid arthritis, insulin treatment and other chronic illnesses. They typically cost thousands of dollars a year, and in some cases may not be patentable since they are proteins and not chemicals. The TPP does, however, state that this provision on biologics will be up for review after 10 years of the entry into force of the Agreement.

The wide data exclusivity mandate in the TPP sidesteps the carefully designed balance of the patent system which only rewards novel, non-obvious and useful inventions with monopoly rights to incentivise their public disclosure. As a result, pharmaceutical companies have tremendous scope for evergreening of drugs and can extend their monopolies regardless of safeguards in patent law by seeking separate marketing approval for minor changes in a drug. To put this in perspective, a study analysing 140 medicines used in treating chronic diseases in Jordan found that at least 16% had no competition from generics and that “originator companies were relying mainly on the use of data exclusivity instead of patents to preclude generic competition.”

Not surprisingly, this provision has attracted severe criticism by global health professionals and access to medicines advocates, who argue that it goes way beyond that TRIPS standard which only requires protection against “unfair commercial exploitation” of test data. The only shift from the earlier text is the narrowing from protection to any data submitted to only ‘undisclosed test data’ or ‘other data concerning the safety and efficacy of the product’ required by drug regulatory laws.

Patent linkage

Patent linkage is the tying of marketing approval of a drug to its patent status such that drugs covered by a patent held by a third party are precluded from obtaining drug clearances. While this sounds perfectly logical, it becomes highly problematic when we consider the fact that drug regulators do not have either the expertise or resources to conduct patent examinations or patent infringement analysis – both of which involve complex comparisons of the patent claims with scientific research and other drugs in the public domain and are usually susceptible to several levels of judicial scrutiny.

Lots of Bitter Pills. Credit: Steven Depolo/Flickr CC 2.0

The present version of the text of the TPP introduces two systems of patent linkage. The soft version requires a mechanism for notifying patent holders when generic market approval applications are made for the same drug and a system for such patent holders to then seek immediate remedies for potential patent infringement before the approval application is processed. While this seems like a balanced approach, a footnote states that ‘patent-holder’ will include a market approval holder. This again allows companies to obtain the benefits of a patent while circumventing the checks and balances in the patent system. The treaty also provides for a harder patent linkage norm where no generic approval is granted without the consent of the originator company when a drug is under patent. Both the soft and hard versions of patent linkage effectively shift the onus and burden of patent litigation on generic entrants to prove lack of infringement or invalidity of a patent, as opposed to the present system which places this burden on the patent holder. This can lead to prohibitively high costs that further inhibit generic manufacturers and drive costs up. A study from the US also reported such egregious practices as companies filing patent applications only after marketing approval applications were made by competitor companies.

Patent linkage is also incongruous with the TRIPS mandated incorporation of the regulatory review, or Bolar exception, in the treaty, which exempts the use of patented drugs in small quantities pursuant to any drug regulatory approval procedure as a means of accelerating generic entry into the market.

Pricing

The chapter on Investments provides that the determination of market authorisation of pharmaceutical products cannot be linked to data on drug sales (which could indicate availability of the drug to patients) and that parties shall also endeavour to de-link pricing from this determination. By using the phrase ‘market authorisation’ and opposed to ‘market approval’ uniformly used through the rest of the text, it seems like this article could expand beyond mere criteria for regulatory approval. In particular, Indian law allows for government use or compulsory licenses in case a patent is unable to meet the reasonable requirement of the public or is exorbitantly priced. For example, India’s first post TRIPS compulsory license for Bayer’s cancer drug, Nexavar, was on the grounds that it was exorbitantly priced (Rs 2.8 lakhs a month) and hardly available to 2% of the patient population requiring the drug.

Traditional knowledge downgraded

At the same time that the treaty introduces hard law norms in favour of private rights of pharmaceutical companies, protection to traditional knowledge is accompanied by weak obligations worded in loose language such as “shall endeavour to cooperate… to enhance the understanding” and “may include… if applicable and appropriate the use of databases or digital libraries containing traditional knowledge.” These provisions on cooperation towards better protection of traditional knowledge are further made “subject to the availability of resources.”

Dispute Resolution

The TPP does provide that parties “may take measures to protect public health in accordance with the Declaration on TRIPS and Public Health”, but has eliminated a provision in the earlier draft which expressly stated that the TPP itself “can and should be interpreted and implemented in a manner supportive of each Party’s right to protect public health and, in particular, to promote access to medicines for all.” With standards such as ‘unreasonable’, and ‘new pharmaceutical product’ open to interpretation, the real test of exception for public health will be in cases brought under the treaty for the determination of the scope of these obligations and rights. The treaty creates its own distinct Investor-State Dispute Settlement (ISDS) mechanism where companies, as investors, can directly challenge criteria for ‘market authorisation’ of pharmaceutical products, whereas patient groups and civil society organisations can only participate through third party observer requests.

Conclusion

The fight for access to medicines has largely relied on generic manufacture of drugs to both make life saving drugs available at affordable rates and drive down prices in the market more generally. The substantial barriers against generic entry introduced by the TPP not only ensure longer monopoly pricing for pharmaceutical products but also render competition between brand and generic manufacturers unviable. This has already led to a new practice of voluntary licensing between these two groups where generics manufacturers agree not to challenge drug patents or invoke compulsory licenses in exchange for the right to market the drug under certain conditions. The manufacturers of brand drugs no longer face pressure to bring down prices and generic pricing stays mid-level since this arrangement has the additional cost of royalty payments, which is often still too high for poor patients in developing countries. Patients groups are left to challenge patents on life saving drugs, though in some cases they may not even be recognised as ‘interested’ parties permitted to bring a lawsuit against the patent holder. Patients in those countries outside the scope of these voluntary agreements such as China are left completely in the lurch.

India has consistently faced tremendous pressure from the US to discard its carefully crafted use of TRIPS flexibilities in its Patent law. Even now, India is contemplating changes to the law pursuant to recommendations from a Joint High level Working Group on IP between the US and India. The TPP is part of a larger effort by the US to export strong IP norms thereby making it more and more difficult for governments to creatively utilise TRIPS flexibilities towards advancing public good. India itself could eventually face pressure to sign up to the TPP and is in talks (now deferred) for an India-EU FTA where a similar battle on TRIPS plus standards is expected to unfold. In the meanwhile, patients in Vietnam, Mexico, Chile and Malaysia – all of whom are part of the TPP – face the daunting prospect of impossible drug prices and a healthcare system that prioritises profit over people.

Rupali Samuel is a researcher at the Delhi High Court and an analyst with the IP law blog SpicyIP.com

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